No offense intended, but actuaries typically are not the bearers of good news. Broadly speaking, actuaries are the people who count money and warn about a rainy day. While most policymakers and CEOs don’t like seeing them coming, actuaries perform a critical function and help ensure that governments, companies, and other entities have enough money set aside for future costs or unexpected expenses.
A recent, one-of-a-kind study from the Society of Actuaries presents a mixed bag: good news for some, and greater expenses for others. After studying more than 100 public retirement systems from 2008 to 2013, across 46 million life-years, they found that teachers have the longest life expectancy of all public employees. Over this period, female teachers on average lived to be 90 years old, and the typical male teacher is expected to live till they’re 88.
Great news, right?
For teachers, absolutely. These findings suggest that in general teachers enjoy a comfortable retirement with sufficient financial support. The fact that most teachers will live into their ninth decade is particularly encouraging given that the average American life expectancy fell for three consecutive years.
Living longer, however, carries consequences for states. Approximately 90 percent of teachers are enrolled in state pension systems. This means that qualified retirees earn an annual pension benefit that is derived from a number of factors, such as years of experience and their final salaries, and a teacher pension is a lifetime benefit. In other words, unlike a 401k, an individual’s pension cannot run dry. The state is obligated to pay the annual benefit for each year of the retired teacher’s life.
Thus, the longer a retired teacher lives, the more valuable their pension becomes. This carries serious implications for state pension funds. These funds, relying on the help of actuaries, base their funding levels, at least in part, on life expectancy estimates. If states are using outdated data or less optimistic life expectancy tables, then they’re likely underfunding their pension systems. In addition to the longstanding tradition of state legislatures simply not providing the actuarially determined level of funding necessary for their pensions to keep up with their obligations, this would mean that even the level of financing recommended by the actuaries may have been too low.
With virtually every state facing a teacher pension crisis, it is vitally important that state pension systems have an accurate picture of their retiree’s life expectancy. While it is likely that the conditions will vary, states should carefully assess their life expectancy estimates and, as necessary, realign their funding levels so they can meet their obligations over a longer term than they may have anticipated.